Non-financial products

Not every investment is a piece of paper or an account entry. Some of it you can touch, and the workbook calls that category non-financial products.

Its own examples are direct: purchase of land, gold, silver, and the like. These sit opposite financial products — a fixed deposit in a bank, shares bought in the stock market, units in a mutual fund — which represent a claim on money or on a company rather than a physical thing.

Both categories exist for the same reason: deploying money out of savings with the expectation of earning a higher return over time. The difference is what you actually own at the end of it — a physical asset, or a financial claim.

The workbook's own list of non-financial products is short and specific: land, gold, silver, and the like — the phrase used is purchase of land, gold, silver, etc. It sits directly opposite the workbook's list of financial products in the same paragraph: fixed deposit in bank, buying shares in stock market, investing in mutual funds, etc.

Both categories can be held for the short term, medium term or long term, exactly like financial products — the workbook does not restrict non-financial products to any one time horizon. It gives no figures — no typical price, no expected return, no holding cost — for gold, silver or land as investments in this booklet.

Ramesh has Rs 5,00,000 in savings and decides to invest it in two ways.

He puts Rs 3,00,000 into a non-financial product — 50 grams of gold, bought as jewellery-grade bullion from a local jeweller — and the remaining Rs 2,00,000 into a financial product, a bank fixed deposit at 7% a year.

A year later his FD has grown to a known amount, exactly as the deposit receipt promised. His gold, however, is worth whatever the market price of gold happens to be that day — it could be worth more or less than Rs 3,00,000, and unlike the FD it pays him no interest at all while he holds it. Both are investments; only one of them is a financial product with a stated, contracted return.

Chapter 2 (Key Concepts in personal finance) draws this distinction immediately after defining what an investment is. Expect a classification question asking whether a named asset — land, gold, an FD, a mutual fund — is a financial or a non-financial product.

• Land, gold and silver are named as non-financial products in this workbook — a question listing them as "financial instruments" is testing whether you have this reversed.
• A non-financial product can still be held short, medium or long term — the classification is about what you own, not how long you hold it.
• The workbook gives no return figure for gold, silver or land — any percentage attached to them in a question is illustrative only.